How Much Should I Be Saving To Retire Early?

And it's the fact that they realize , whoa , I don't have to do it because I'm in a good spot , that makes them go wow , yep , I'm going to take a job that's less stressful , with less responsibility , or no , I am going to switch jobs to a career that's way less stressful .

That I've always wanted to do , and I'm going to do it because I want to do it and I'm in a good spot . First , there are , of course , some that are like , hey , I really hate what I'm doing . I want out yesterday . I don't know if I want another job .

Thinking right now is , if you're listening to this episode , which is I made it specifically if you're in your 40s 50s going , hey , I want to make sure I'm doing the right things . I want to retire early . I just don't know exactly when Am I saving the right amount ? That's what .

Who I have in mind , and if you're listening on the younger side of that going hey , I just want to get ahead like kudos to you , but for most of I just not there yet , so I need some help . So I mentioned this last week and I'm going to go through this today . But last week I mentioned I've got my early retirement Academy coming out .

That is coming out June 1st . That is going to have the software that allows you to run these projections on your own so that you can go okay , am I on track ? What things should I be thinking about that I otherwise couldn't have either wise known . So hopefully that's going to be exactly what you're looking for . Once again , that comes out June 1st .

You want the discount code ? You just go to the survey in the description of today's episode and you will be able to fill that out . So I want to tell you an example right off the bat my quick story , because this is a real life story .

It's how I like to do these , and then I'm going to give you my entertaining review of the week , a fun review , and we're going to have some fun . So as much as possible , I do try to keep these fun . Some of you are like , hey , I listen while I'm working out or while I'm driving , I'm like cool , I recognize .

You don't want it to be like I got to learn another lesson today Now . I like learning . I think you like learning , that's why you're here . But I also want to make sure you don't get . They will respond in the following way If you go , hey , how much should I save to retire early ? They're going to go . It depends .

I'm like hey , that's great , it does depend . But I need more than that . I want some more guidance , and so what I'm going to go through today is maybe another way to think about this . So you go hey , that's helpful . A lot of you know my dumb joke , doc . I think what you just said sounds great . I think you think that it sounded great .

I don't know what you just said . So like , try again , please . Like I need to make sure this is coming through . I'm not trying to be mean , I just need to understand why you're saying what you're saying . So I'm going to go through an example , real quick , and see if this resonates with you guys . You might start thinking a little differently .

So someone said this was a while ago now . They said hey , and you know I'm the first person anyone reached out to the company I want to speak with you to see if you're a good fit , etc . So they said , hey , tell me what you do in 15 seconds , and if I don't like your answer , you're like fired before I even start .

I'm like , okay , give me at least a minute to think about this answer , considering I'm gonna be fired in you know 60 seconds . If you don't like me , I go okay . They said okay . So I said , hey , my job is to quantify trade-offs , so you understand the magnitude of those decisions . And they're like , okay , we can continue .

But like they still aren't that happy , I'm like okay . So anyway , the point of the story here . I'm going to give you my example . So a client came to me when they were 50 . They were really stressed out . Okay , 50 years old , really stressed out , a few different accounts , but a million dollars was the general total .

It's like 988 , but a million dollars for simplicity sake . Now , they're really stressed out . What I really care about is how much do you want to spend in retirement ? That's the big driver that most people overlook . But it's not sexy because it's not investing in tax planning , and but that's the big one , okay . So don't overlook that .

But let's , for this sake of argument , say you're 50 , you've got a million bucks . You can do the same analysis I'm doing right now If you're 40 with 500,000 or 40 with a million or 30 with a million same thing , it's gonna just apply it to your situation . So here's how I want you to think about it .

There's a time value of money calculator and so it's very common people go yeah , I'm working right now , I'm really stressed , but I know I should be adding more money because it's going to help , and they're correct , it does help . But then there becomes a point where saving more doesn't help nearly as much as investing the right way . Like , what do you mean ?

If you have a million dollars and you get a 10% rate of return , that's significant . That's $100,000 growth you just received . If you have $10,000 and you get a 10% rate of return , good for you , but that's a thousand bucks .

So I'll often tell children of clients and I'll joke , because a child of a client did come to me and they were like hey , I want you to help me . Like , put crypto in my 401k . I'm like not only are we not doing that , but what's going to happen is I need you to shut up . And they're like , oh , how dare you talk to me ?

And the parent was loving it . Like I asked permission , they want to . You know , we're very transparent with this family . And they're like oh my God , what do you mean ? Shut up ? You've never been spoken to that way . I'm like , hey , I'm just kind of joking around here , but my premise is I don't want you to worry about your return .

What you need to do at 20 years old is go max out your 401k . That's way more important than your return . It's the opposite .

When you get a lot older , if you were to not add $20,000 because you're 50 and to see me freak out because I'm going to say I need you invested the right way , because adding $20,000 does not come close to getting the right return , so some of you are like , yep , that makes sense , just need to hear it . So hopefully that helps .

Now on my example you're 50 years old , you've got a million bucks and let's assume you want to retire . Let's just say , in 10 years , at 60 , keep it simple Okay , let's see me on our tire in 10 years . Okay , so here you are , you want to retire in 10 years .

This example I'm going to tell you right now is only going to resonate if you understand the rule of 72 . Most of you have heard of it . Some of you are like , no , it's really cool , okay . So the premise here is there's a really complex formula . Don't worry about it .

What it means is the rule of 72 tells you how long it takes to double your money , based on the return that you receive . So let's assume you take 72 and you divide that by 10% . Okay , so 10% is the return you get . That's going to tell you it's going to take you 7.2 years to double your money .

Okay , so someone will be like , hey , that's great , but I don't want to rely on like 10% . I go great . Let's , for simplicity's sake , rely on 7.2% . 72 , divide that by the 7.2, . Here we are 10 years to double your money .

So let's assume you're 50 and you have a million dollars and if you get 7.2% every year which you won't , just taking an average after 10 years your money's going to double to 60 . I know a lot of you are like , hey , where are you choosing 7.2% from ? And what's the ? I just made it up . Okay , so I'm just choosing it .

You could do a lot better than that . You could do worse than that . Just let's use 7.2% for simplicity . So here you are , at 50 with a million bucks . Your money doubles and now you're 60 with 2 million bucks . Okay , so the same person is a real person I'm taking the example from . They are 50 . They're making $120,000 every year .

Now they're really stressed and they don't love what they do . So they go Ari , I'm thinking about quitting and taking a job that pays way less , that I enjoy more , and I've already kind of picked it out . And I go okay , you're one step ahead , because most people haven't already picked it out . They just start thinking about this .

I go how much are you saving every year ? They go all right , I'm saving $10,000 a year . I go okay , great , where's that going ? They go it goes to my 401k . I've already got a brokerage account because I started that early and you know which ? The real superhero for an early retirement .

Because if you want to retire before 59 and a half , you got to tap into accounts earlier where you're going to go for that , that kind of thing . So 120,000 a year , that's what they're making in their stress . So picture this guy he's 50 , he's got three kids and he's stressed at work . Okay , kind of got a visual .

Now he's working right now he's saving 10,000 bucks a year , so that's great . I said , hey , if you keep doing that , you're going to be in a good spot , like , if you just and they're like hey , I know that I'm coming to you to know , do I need to do that ? I go , let's talk about your expenses and health and how much you want to leave to each kid .

And so we had that whole conversation and he's like okay , so can you just give me like the financial answer I'm like of , know , show that . You know I got some cool tools . You know every advisor's like let me show off my tools . I'm like you're an advisor , okay , it's not that cool , unless you're doing your job really well , in which case it is cool .

But most are like look at my software . I'm like software . Software is helpful for a conversation , but that's all it is . Most people rely only on the software . Don't do that Same story here . I won't do a big tangent . But someone came to me like , hey , I have a 99% chance of success . I go then go retire . They're like , yeah , I don't know about that .

I'm like , why not ? It says 99% . You ran these little Monte Carlo simulations . It's pretty cool . No-transcript . Do my big tangent here , I promise . Back to the story . Keep it really simple . 50 years old , make it 120,000 a year . Got a million bucks , simple enough .

When that , if he adds $10,000 every single year , which once again that's what he's saving to his 401k right now , he will have $2.14 million because once again it won't just be 10 , it won't be 1 million , becomes 2 million because he's adding new dollars . So because he's adding $10,000 year over year , it's gonna grow a little bit .

Helps compound the portfolio beautiful stuff . Here he is $2.14 million . Okay , so you're going . Why did you just tell me the story ? Well , because I'm going to show you the alternative that I told him to think about , the one that he actually took , and I'm going to show you why .

So now you've got the picture of a 50-year-old guy making $120,000 a year with three kids and he's stressed Okay , now , for the sake of argument , I'm not including his wife's details , how much they want to spend and yada , yada . Let's go to my alternative . Okay , and I know I'm still in story mode .

I haven't even hit the comments of the week yet , so maybe I'll make this a four hour episode for you guys . I'm just kidding . So let's now assume , instead of 120,000 a year , I tell him to go take this other job that pays way less , that he's going to enjoy way more . Okay , and you're going .

I know you're thinking right now you're going , yeah , but like he's not going to make as much , so is it worth it ? And I go , you're thinking about it wrong and you're like what do you mean ? Here's how to think about it . Okay , I'm going to give you the alternative , but you got to understand it .

If I came to him and said , hey , I don't want you to take this job that you're stressed out right now and it's year , yes , you're saving 10,000 , but I actually would rather you take this job that pays 10,000 a year , a lot of you are going well , then I can't meet my bills , then I can't do X , y , z , o , and I'm the first person to go yep , I know

, I understand how that works . But here's what I need you to think about . If you're making 10,000 , your first thought is , wow , 10,000 is not a big deal . But what I want you to think about is what if it was $60,000 ? And you're like I told you I make $120,000 . So $60,000 is not that big of a deal .

I go , you might not think so , but it's not $60,000 that I care about . I know if you made $60,000 a year , you probably wouldn't be able to save even that $10,000 . I go , yeah , I know it would make you tight , but here's what you didn't think about . It's not 60,000 a year that I care about . It's 60,000 less .

That has to come from your portfolio and I would rather you do that than you simply continue doing the job . That's super stressful and it's because your portfolio is at a healthy position . I don't need you to save as much anymore . I need you to invest well . I need you to prioritize your health .

I need you to spend knowing you're in a good spot to do so , and I don't want you to die with $10 million at age 85 or 95 or 100 . They're like , okay , you've got me intrigued , you're not convinced , but okay , go on . So here's the alternative . Most people go what big of a deal is it ? I make 120 , 200 , 500 , a million bucks a year right now .

If I make a hundred thousand , is that even going to matter ? I go . Not only does it matter , it only matters because you have a healthy portfolio , so you don't need to save as much . Saving doesn't have as much impact . So here's the alternative . I told this client go , take this job . I pay $60,000 a year .

That's a 50% haircut to what you're paying today . Your kids are already through college and you've saved well from you . Don't need to keep saving . Take this job . It pays 50% less , don't save anything . And let's assume we use that same rule of 72 after 7.2 , you know , once again , just assuming 7.2 is your rate of return .

After 10 years your million dollars would have doubled . And so now here you are , 60 with $2 million . So what's the difference here ?

Well , in example one , he's going to keep working 10 more years at a stressful job that he doesn't enjoy and it's because he thinks it's going to save and make a big difference , and at the end he has $2.14 million versus making $60,000 a year , half way less stressed , enjoying what he wants to do , and he has $2 million at the end .

So it's $140,000 difference . Now , of course , growth , different changes . Yeah , let's assume there's more growth . Let's assume he's worth more than 10,000 a year . Yeah , maybe he'd have 2.3 or 2.4 instead of 2 million , but I would argue how much is enough ? Now , this particular client also has a spouse , and so it's not like this is their only income .

In addition to that , their kids are going through college . They're going to be fine . And so his next question after this was how early can I retire ? And so now he's going . Ooh , this was based on 10 years . I said , yeah , let's assume . What if ? Let's take the same example . But let's assume you get 10% rate of return ?

They go oh , yeah , let's do that . I go . Why are you so excited ? Now they go . Well , now I understand this rule of 72 . If I get a 10% rate of return , my money's going to double in 7.2 years , hypothetically . And so now I'm not working until 60 , I'm working until 57 . I just cut three years off my retirement because I invested .

Well , I go , that's right . And they're like oh , this is why planning's cool . So the point here is , if you're in your 20s , 30s , 40s , thinking about how to think through this , prioritize your energy and your health . Make sure , yeah , you're spending a lot . The common mistake people will also make is they'll go .

Hey , yeah , I know I could take a job that pays less , but like I've got bills today , I need to . Can I put my kids through college ? Yeah , yeah , my long-term retirement looks good , but my short-term retirement doesn't look good , which is like the next five to 10 years . And if I'm gonna retire at like 57 , all right , I don't have a 401k .

So how am I gonna bridge that gap ? And that's when I say I am the meanest early retirement advisor . I don't want you to ever retire too early and run the risk of running out . I just wanna make sure you're not working unnecessarily . So hopefully that 15 , 10 minute story just resonated with you .

Where part-time income plays a big role , I won't even call it part-time income , I'll call it a job . That's way less stressful . I don't love the word retirement . I prefer recreational employment . Are you working because you want to or because you have to ? That's what I , and then from there you might go .

Yeah , I'm going to , on purpose , keep working 10 more years because I want to spend and go first class for the rest of my life . When I take trips , I go cool . Let me show you how much you need to do that , I may say you can do it right now . That's what a planner should be doing for you .

So , with that being said , let's go through the quick reviews of the week , and this comes from ChookChook2451 . He says I'm not an American , but this advice is relatable . I'm currently doing all the fix up jobs on my house now Hope to retire in two years . Love your enthusiasm and genuine love of your work . Keep it up .

So what he's referring to is very , very common . There's something called sequence of return risk . Don't let it freak you out because you're like , oh my God , I've never heard of that before . Okay , here's what it means . What if you retire and you get unlucky ? You retire at 57 and you go ?

Oh my God , markets go down and it's the same year I'm going to take those trips and I've got healthcare because Medicare is not in and , oh my gosh , I was going to hope to do a remodel .

What you don't want to do is get unlucky , markets go down , you retire and now you have all these expenses and the risk is it could really take a big hit to what you're gonna spend the rest of your life , because if you have $2 million and you've gotta spend on healthcare and travel and you've gotta fix the home .

Well , now markets are also not doing well . Well , what if you have to take two 300,000 out during the year market's down ? Well , now , that's gonna change what you're gonna spend the rest of your life . So the way you protect against that is the years leading up to retirement .

As much as you can , you bolster the brokerage account and you start tackling those big potential expenses , like a wedding for a child , like a home remodel , whatever it is . So that's what this person's referencing and glad that it has helped . And then this is my it's not really a hate comment . This week , every week , I'll try to keep it interesting .

This comes from Rayzerot R-A-Y-Z-E-R-O-T . It could be Rayzerot , rayzerot , whatever it is and he says spending that much on a wedding , a wedding they want to spend the down payment for a house , for a wedding Holy , not going to say the next word . So the point here is what this person fails to recognize , and I don't blame them .

They're not a client of mine , I haven't educated them . They probably haven't heard , maybe , all the podcasts . But the point here is , in this particular episode I talked about my client that spent $300,000 on a wedding , and I told them to do it , and you're like , how could you recommend that ? All right , that's crazy .

They could have done a down payment , or they could have done . I'm well aware Now they're an Indian couple that have specific values , and this is what they care most about , and I told him to do it without any head trash . What I don't want you to do is be sitting at your kid's wedding going . I just gave him 40,000 bucks . What does that mean , though ?

For my long-term care , did I just put away my future retirement ? Am I not going to be okay ? I don't want you going . I know my child is going to be a higher earner . They're doing really well . I really love them .

I want to give them a hundred thousand bucks for their dream wedding that they've told me about , but I'm not going to because you know , I just don't know if my retirement can support that . And then here you are now , at 85 , with way too much money , wishing that you would have helped them out more . So , understanding , how much can you help them out ?

That's my job . I'm quantifying the trade-offs , so they're not sitting there wondering am I in a good spot or not ? The best example I give in my opinion , but you guys all get to tell me is so I'm a soccer player . I love playing soccer to an unhealthy degree , and so my point here is I am not fun to be around when I get hurt . I want an MRI .

An MRI is like your financial plan Okay , am I kind of in a good spot ? It's just telling , it's not going in . And you know , an MRI can be read very . You know many different ways , and if you go to one doctor , they're going to say , hey , it's not that bad .

Another person's going to say it's really bad , it's not going to bit of inflammation , versus another doctor that's going to say , hey , this doesn't require a surgery , and so having the right physician look at the MRI is important here . And so that's when I'm the first person to say everyone doesn't need an advisor , it depends .

I've got this academy that's coming out shortly . Once again , june 1st , that's going to be for those that go hey , I want to run these projections , I like doing this . I want to run these projections , I like doing this . I want to see am I in a good spot ? But I want some guidance and maybe there's some things you're going to tell me .

I couldn't have otherwise known , because this is what you're doing all day . That's perfect for those people . Others are like hey , I want an advisor . I don't want to do this , I want guidance . Great , that's why we exist .

But we don't work with everyone , and the reason I tell you that my job is to half a joke scare people away because what we do isn't for everyone . Some people are like , hey , just tell me what stock to buy . I don't want like tax help and like healthcare stuff or withdrawal stuff . Just tell me .

I'm like great , there are 10 firms down the street I said this last week that will help you out . It's just not us . Not because we're mean , but because you're going to be looking for something that we don't do . We're not stock pickers . We're out here saying , hey , you worked really hard to accumulate what you have . It's now time to optimize it .

This next stage of life is a different story . It's got different challenges . I don't want you to still be a great saver . If you stay as a good saver , which is why you probably are where you are today you will not have success . Yeah , your plan's going to look fine , but you're going to wish you to go through .

I want you guys to get the guidance you're looking for . Hopefully this was helpful . If so , please , of course , rate the show . Review the show helps more people find it and share it with someone you want to retire early with . That's all I got for you guys today . Love you guys .

Please do rate it , review it and share it with someone who you think would benefit from this information . If there's anyone out there that you know , I certainly appreciate it and I will see you all each week .